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S&P - Still Range-bound
The chart pattern(s) everyone is watching
July 22nd, 2012
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Hello:
We know that it feels like a lot happened in the markets last week. But, a closer look reveals that all we did in the broader market was hit the upper end of the range or triangle. Therefore, this week's letter is going to be relatively short - we'll examine only one market - the ES. And, maybe we'll comment in a couple of others. But, really, most of the financial related markets seem to be waiting for a catalyst to start trending in one direction or another. One other thing we'd like to note is that a couple of months ago (May 17-May18), we created a couple of simple models and published the results on elitetrader.com. These models said that we were close to a bottom and that the odds were that we'd be trading higher 60 days later. One of the models was shorter term in nature and predicted that we'd be trading higher 20 days later. Both models suggested that the odds were that we were close to an intermediate low. These are the kinds of models that we like to run when the markets start to hit extremes. But, they also form the basis of some mechanical trading models as well. We'll be talking about some of these models in future newsletters. Please note: We sometimes send out real-time updates via twitter: If you wish to receive these updates, simply follow us: our handle is structuredmkts. ( http://twitter.com/#!/structuredmkts) |
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| S&P: At a key level
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A couple of weeks ago we published an argument that suggested that the broader markets could trend higher for a bit. In particular we suggested that it would attempt to take out a swing high that was created earlier in the month - primarily based on the new-high-new-low index. That attempt occurred last week and was successful - of course there were a couple of deep, frustrating flushes before that occurred but every sell-off was ultimately met with buying. But, now, we are at a key level and all we can do is wait and see which of the bulls or bears will win the day.
With last Thursday's rally, we pushed above the prior swing high and Friday's sell-off created a new pivot for our triangle. A close above last Thursday's high would indicate a quick move to 1400 (basis Sept ES).
Given the tight nature of this coil we are still suggesting that standing aside is prudent. However, if you want to play inside the coil, then you must have a stop above last weeks high for shorts. You would not necessarily want to be long inside this coil right now because Fridays sell off would indicate that price has hit the upper end of the triangle and therefore, could move back to the lower end.
One more thing to keep in mind - IF the low of the power-buy structure that we showed a couple of weeks ago is taken out then the market will officially be in a down-trend.
The Bigger Picture
This bigger picture chart shows us holding at the upper end of the uptrend that started in 2009. At some point, the consolidation will break and history will then show this coil as either a continuation pattern or a part of a distribution top. Until that happens, we have to respect the uptrend that is still in place and a market that, so far, hasn't really broken through any significant support. |
| Other Markets
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A quick look at other markets indicate the following:
ES: Coil
YM: Coil
NQ: Coil
Gold: Coil
Silver: Coil
Copper: Coil
Bonds: Up-Trend
Crude: Coil (weekly chart)
NG: Possible weekly bear flag
EC: Down Trend
BP: Coil
JY: Coil
Grains: Weather Trend Up
KC: Possible weekly bear flag
SB: Possible weekly bear flag
CT: Coil
In other words, we're seeing a LOT of coils. Sooner or later they will break and lead to more trendier markets but for now, there is a ton of noise in anything related to financials |
| The Trade(s)
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S&P: Wait for breakout from coil.
GOLD, SILVER: No trade - wait for breakout from the very large chart formation.
SOYBEANS, CORN, WHEAT: Runaway train - at this point, best to wait for a daily oscillator to pull down. Chances are you're going to get a few limit down days once we get some rain in the forecast.
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| Important Risk Disclosures and Legal Disclaimers - This stuff is important!
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First you should realize that PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS! The risk of loss in trading commodities can be substantial. You should, therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage that is often obtainable in commodity trading can work against you as well as for you. The use of leverage can lead to large losses as well as gains. |
| Coming Soon
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Over the last two months we have received feedback on the types of products that you would like to see. In particular, many of you asked if our systematic models were available for sale or lease. We're working on something that is suitable for retail traders - stay tuned and keep your comments flowing!
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| Other Information
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| Contact Information
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email: contact@structuredmarketseducation.com
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